Fairy Tale of New York is playing on the radio, tinsel has appeared on the monitors and our logo has changed. Yes, you guessed it, it’s Christmas time! So, it’s time to wheel out our annual advice for the season of entertaining and celebrating, on what you can and can’t claim against your tax.
I know, somehow, we always make everything about tax, even the best times of the year- we can’t help its an occupational hazard.
The Christmas Party
There is a tax exemption for employee entertaining if the event:
- is an annual party or social function, such as a Christmas party
- is open to all employees (or all employees based at one location)
- cost does not exceed £150 per head (inclusive of VAT)
This means you can pay up to £150 including VAT – claim a tax deduction and reclaim the VAT (but not for guests.)
The limit of £150 per head applies to all attending the party, not just employees. So, if employees are bringing guests, the total cost should be divided by the total number of employees and guests.
A taxable benefit will arise if either the limit is exceeded, the function is not open to all staff or it is not an annual function.
Please be aware that the £150 per head limit is an exemption not an allowance – go over the £150 and the full cost becomes taxable.
VAT
VAT is reclaimable but only for employees, so if partners are invited then you can only claim on the proportion that relates to your employees.
Cash or Vouchers to Employees
Any cash gifts are taxable as pay and vouchers are taxable through employees P11D.
Gifts to Employees
Giving employees a seasonal present, such as a turkey or a bottle of wine is fine, as long as the cost of the gift is ‘trivial’ – typically less than £50 per person – then the gift will usually not be taxable.
Gifts received from Third Parties
Employees can receive gifts from third parties and as long as the gift does not exceed £250 in cost, it should not be taxable for the employee.
Giving Gifts to Suppliers and Customers
These gifts are also classed as entertainment and are not deductible for tax but there are exceptions:
- For example, if the gift has conspicuous advertising on it such as an umbrella or diary and is less than £50
- Gifts to charities are tax deductible
- If you are giving away a product you make, this is classed as promotion
Conclusion
So, the tax man doesn’t hate Christmas…he just doesn’t like it that much! Christmas gifts can be given, and merriment can be had by all as long as they aren’t over £50, and the party is less than £150 per head.
If you are unsure what you can and can’t claim, or are worried you have spent too much, then contact us.
